Insurance, the “Sharing Economy,” Millennials & More

PCI Legislative & Political Conference Orlando, FL

October 29, 2015Download at www.iii.org/presentations

Robert P. Hartwig, Ph.D., CPCU, President & EconomistInsurance Information Institute 110 William Street New York, NY 10038

Tel: 212.346.5520 Cell: 917.453.1885 bobh@iii.org www.iii.org

The “On-Demand” (Sharing) Economy

The On-Demand Economy Will Transform the American

Workforce and the P/C Insurance Industry Too

2

3

Labor on Demand: Huge Implications for the US Economy, Workers & Insurers

Will YOUR job be reduced to an app?

4

The “On-Demand” World is Not New…

Source: Insurance Information Institute.

Companies like Angie’s List

(established in 1995 and going online in 1999)

have been around for decades

The Geek Squad has been

around since 1994…

Peapod sprouted way back in 1989!

5

…But the “On-Demand” World is Exploding as Is the Demand for “On-Tap” Workers

Source: Insurance Information Institute.

Need something done around the house…Click on

Handy

Hate doing laundry?

Washio will do it for you…

Hate doing just about everything?

Taskrabbit will take on virtually

all your “tasks”…

6

You Can Live Your Life with the Swipeof a Finger…

Get married…

…Move

…And if it doesn’t work out…

7

Some Players in the On-Demand Economy Have Become Household Names

…Need a Lyft?

…This ride has taken Wall Street to the

stratosphere

Rent a place…

8

On-Demand/Sharing/Peer-to-Peer Economy Impacts Many Lines of Insurance The “On-Demand” Economy is or

will impact many segments of the economy important to P/C insurers

Auto (personal and commercial)

Homeowners/Renters

Many Liability Coverages

Professional Liability

Workers Comp Many insurance questions arise—

some fairly simple, some complex

Insurance solutions are increasingly available to fill the many insurance gaps that arise

Technology and Employment

What Makes the On-Demand Economy Possible?

Why Does It Matter for Insurers?

9

GLOBAL SHIPMENTS OF SMARTPHONES (MILLIONS)

Smartphones are the breakthrough technology behind

the on-demand economy

2015: ~50% of adults globally have a smartphone

2020: About 80% will own one

0.8%1.7% 1.8% 2.3% 2.0%

18.6%

6.6% 6.2%5.7%

6.5%

3.7%

1.6%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

2010 2011 2012 2013 2014 2015*

Growth in Temporary Workers vs. All Nonfarm Employment, 2010-2015*

*Through September 2015.Source: US Bureau of Labor Statistics , Insurance Information Institute.

Annual Percent Change

Demand for temporary workers has increased 2 to 3 times faster than for workers

overall in recent years

13

The On-Demand Economy and American Workers: What Is Happening?

Technology is Fundamentally Transforming How Resources are Allocated and Used in the Economy

Labor is No Exception to this Transformation

Technology Offers New Opportunities to Match Labor to Jobs

Owners of spare capacity (workers with time and skill) can be paired at low cost with those with a demand for that time and skill

Bringing together labor and those who employ labor is not new

BUT: Pairing occurs with a speed and breadth never before possible

Witnessing the Demise of the Traditional Understanding of What is Meant by a “Good” Job

Concept born in the Industrial Age (1880-1980), is eroding

Disintermediation of the firm as the place where labor, jobs matched

Accelerating Trends that Started with Labor Strife, Globalization and Automation that Began in the 1970s and 1980s

14

What’s In Store for the American Worker, Labor Force and Workers Comp

THE NEW AMERICAN WORKER: Two Schools of Thought

OPTIMISTIC OUTLOOK

Technology frees workers from the bonds of centralized, hierarchical institutions (the firm)

Enhanced coordination of “haves” with “needs” that bypass firms as intermediaries

Who Benefits?

“Flexers”: People who value or require flexibility in work arrangements (stay-at-home parents, retirees, students, disabled)

Professionals: People with portable skills that can be offered through online platforms (semi and high-skilled trades, professional services)

Unemployed/Underemployed: Offers at least some opportunity to offer and utilize skills and generate income

Sources: Wall Street Journal; The Economist; Insurance Information Institute research.

15

What’s In Store for the American Worker, Labor Force and Workers Comp PESSIMISTIC OUTLOOK

On-Demand companies are software-driven marketplaces and position themselves as “platforms” rather than “employers”

Enormous valuations (e.g., $40B for Uber on $2B in earnings) reflect the extraction of resources that otherwise would go to benefits, investments in safety, training, etc.– Uber’s valuation was greater than that of 72% of the S&P500 at YE 2014

– Valued more than Delta Airlines, Kraft Foods, CBS, Macy’s, Hilton, Aflac…

Jobs reduced to freelanced, temporary “gigs”

Low skill workers and those who lack flexibility are left further behind

Workers treated as independent contractors without intrinsic or basic economic rights

What Is Potentially Lost or Compromised? Stability, Retirement Benefits, Sick Pay, Maternity Leave, Overtime

Health Insurance, Liability Coverage, Workers Comp Coverage

Sources: Wall Street Journal; The Economist; Fortune; Insurance Information Institute research.

16

Potential Consequences for Insurers

On-Demand Platforms Have Struggled with Concepts of Liability There Has Been a General Resistance to Assuming Liability or

Responsibility Unless Compelled to Do So Companies Have Sought to Keep as Much Liability as Possible on

the Individual Offering their (Contracted) Labor or Resources Minding the Gap

Traditional insurance will often not cover a worker engaged in offering labor or resources through these platforms

E.g., Auto ins. generally won’t cover you if you while driving for Uber

Home ins. won’t cover for other than occasional rentals of property

Unless self-procured, on-demand worker (independent contactors) will generally have no workers comp recourse if injured on the job

Long Legislative and Court Battles Lie Ahead, Including Determination of Who is an Employee vs. Independent Contractor

Insurance Solutions Becoming More Common

17

On-Demand Workers

Who Are They?

And Who’s Driving Demand for Them?

17

18

19%

9%8%

6%

2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Tried It--AnySector

Entertainment &Media

Automotive &Transportation

Hospitality &Dining

Retail

Percent of People Who Have Engaged in an “On Demand/Sharing Economy” Transaction

The majority of the US population has yet to engage in the “On

Demand” economy

Sources: PwC survey of 1,000 adults in the U.S., conducted online, December 2014; Insurance Information Institute.

Percent

About 19% of the US population has engaged in an “On Demand/Sharing Economy” Transaction

19

Age of People Who are Providing the Sharing/On-Demand Economy

Sources: PwC survey of 1,000 adults in the U.S., conducted online, December 2014; Insurance Information Institute.

18 to 2414%

25 to 3424%

35 to 4424%

45 to 5414%

55 to 648%

65+16%

Being a provider of services in the

Sharing/On-Demand Economy is

attractive to workers in the 25-44 age range (who want

flexibility in raising families) as well as

seniors age 65+ who see the offering their services on-demand as a way to augment

retirement income

About 7% of US population are providers in the Sharing Economy, cutting across age and incomes; 51% of those familiar with the concept could see them

selves as providers within the next two years.

20

Household Income: Providers of the Sharing/On-Demand Economy

Sources: PwC survey of 1,000 adults in the U.S., conducted online, December 2014; Insurance Information Institute.

Less than $25,000

19%

$25,000 - $49,999

24%

$50,000 - $74,999

16%

$75,000 - $99,999

16%

$100,000 - $149,999

11%

$150,000 - $149,999

3%

$200,000+11%

Being a provider of services in the

Sharing/On-Demand Economy is particularly

attractive to workers with household incomes under

$50,000

About 7% of US population are providers in the Sharing Economy, cutting across age and incomes; 51% of those familiar with the concept could see them

selves as providers within the next two years.

The On-Demand Economy andWall Street

Wall Street Loves the On-Demand Economy

Labor Markets, Insurance Markets Will Be Impacted

21

23

An UBER Case Study

Uber is the Best Known of the On-Demand CompaniesWall Street Loves Uber

Vested Interests Hate Uber

23

UBER Challenges

Are Uber drivers independent

contractors or employees?

California DOL has ruled they’re

employees

Different states may reach

different conclusions

Determination significant impacts

insurance framework

27

A NEST Case Study

Nest: A Leader in the “Internet of Things”

Collision Course or Cooperation with the Insurance Industry?

27

28

Telematics for Your Home:The Internet of Things

The home is the next frontier for telematics Rapidly becoming a crowded space How and with whom will insurers partner? Can control increasing array of household

systems remotely Heat, A/C

Fire, CO detection

Security Systems

Cameras/Monitors

Appliances

Lighting

Technology is adaptive Uses sensors and algorithms to learn about you

29

Partnerships with Insurers: Selling Safety and Savings Simultaneously

Source: https://nest.com/insurance-partners/ accessed 11/1/15; Insurance Information Institute research.

Nest is actively seeking to partner with insurers. As of Nov. 1, 2015, Nest listed 2 insurance partners offering discounts in a number of states: American Family

(MN) and Liberty Mutual (AL, CO, DE, IL, KY, ME, MN, PA, UT and WI)

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Partnerships with Insurers

Source: https://nest.com/insurance-partners/ accessed 11/1/15; Insurance Information Institute research.

Nest is selling its products via

insurance partners

31

Partnerships with Insurers

Source: https://nest.com/insurance-partners/ accessed 11/1/15; Insurance Information Institute research.

Nest is selling its products via

insurance partners

32

Partnerships with Insurers: Information Collected, Addressing Privacy Concerns

Source: https://nest.com/support/article/When-I-enroll-in-Safety-Rewards-what-kind-of-data-is-shared-with-my-insurance-company accessed 11/1/15; Insurance Information Institute research.

Privacy, control of data

concerns get significant attention

33

Partnerships with Insurers: Information Collected, Addressing Privacy Concerns

Source: https://nest.com/support/article/When-I-enroll-in-Safety-Rewards-what-kind-of-data-is-shared-with-my-insurance-company accessed 11/1/15; Insurance Information Institute research.

Privacy, control and security of

data get significant attention

34

INDUSTRY DISRUPTORS

Technology, Society and the Economy Are All

Changing at a Rapid PaceThoughts on the Future

34

35

Media is Obsessed with Driverless Vehicles: Often Predicting the Demise of Auto Insurance

By 2035, it is estimated that 25% of new vehicle

sales could be fully autonomous models

Source: Boston Consulting Group.

Questions

Are auto insurers monitoring these trends?

How are they reacting?

Will Google take over the industry?

Will the number of auto insurers shrink?

How will liability shift?

36

On-Demand/Sharing/Peer-to-Peer Economy Impacts Many Lines of Insurance The “On-Demand” Economy is or

will impact many segments of the economy important to P/C insurers

Auto (personal and commercial)

Homeowners/Renters

Many Liability Coverages

Professional Liability

Workers Comp Many unanswered insurance

questions

Insurance solutions are increasingly available to fill the many insurance gaps that arise

*From publically available sources as of June 2, 2015.Source: ISO/Verisk.

TNC Ridesharing Arrangements: Insurance Applicability

37

The concern was that TNCs were seeking to offload risk on to personal auto insurers. An increasing number of

personal auto insurers have developed solution to ensure that coverage gaps are minimized

Source: ISO.

Ridesharing Regulation/Legislation and Status of ISO Filings as of 9/30/15

38

Status of ISO FilingsStatus Ride Sharing

Legislation/Regulation

Source: ISO/Verisk.

Homesharing Arrangements: Potential Host Exposure Concerns (Receives Rental Income)

39

.Source: ISO/Verisk.

Homesharing Arrangements: Potential Traveler Exposure Concerns

40

.*As of Oct. 6, 2015.Source: ISO/Verisk.

Homesharing: ISO’s Proposed Changes*

41

42

Send in the Drones: Drones Will Help Enable the On-Demand Economy

Drones or Unmanned Aerial Vehicle (UAV) technology is seeing rapid adoption rate in many industries, including insurance

~700,000 drones in US by year-end

FAA granting Section 333 exemptions for commercial use and testing of UAS

FAA will require most drones to be registered by year-end 2015.

At least 5 insurers have received permission to test

Will be adopted for use in many industries where speed of delivery is critical

Insurers partnering with construction industry to guide R&D and regulation of UAV use via Property Drone Consortium: www.propertydrone.org

43

Millennials and Insurance

Actively Disengaged or the Vanity of Youth?

43

2015: Millennials Overtook Baby Boomers as the Largest Generation

Source: “This Year Millennials Will Overtake Baby Boomers,” Pew Research Center, January 15, 2015 accessed at http://www.pewresearch.org/fact-tank/2015/01/16/this-year-millennials-will-overtake-baby-boomers/ .

There were 75.3 million Millennials

in 2015, overtaking for the first

time the Baby

Boomers who totaled 74.9 million

Channel Preference for Home/Rental Insurance, by Age Category

Sources: “5 Reasons Millennials Aren’t Buying Insurance from Local Agents,” Eric Narisco, Sept. 16, 2015 from PropertyCasualty360.com based on a study by Effective Coverage and performed by ORC International.

2/3 of Millennials purchase dwelling coverage

directly from the company

How much of this is a

generational preference vs. having

very simple insurance

needs?

Insurance Customers: Engagement by Generation

Sources: Gallup: “Insurance Companies Have a Big Problem with Millennials,” Daniela Yu and Chris Portera, March 5, 2015

Millennials are the least likely to be

engaged with their insurer

Millennials are more twice as

likely to buy online

Millennial’s families

influence their choice in insurers

Insurance Customers: Key Drivers of Engagement for Millennials

Sources: Gallup: “Insurance Companies Have a Big Problem with Millennials,” Daniela Yu and Chris Portera, March 5, 2015

Data security

and ease of making

coverage changes are

keys to successful

engagement with

Millennial insurance

buyers

48

Millennials as Drivers & Homeowners

Yes, They Want Their Own Place and a Set of Wheels Too!

48

49

(Millions of Units)

New Private Housing Starts, 1990-2021F

1.4

81

.47 1

.62

1.6

41

.57

1.6

0 1.7

1 1.8

5 1.9

6 2.0

71

.80

1.3

60

.91

0.5

50

.59

0.6

1 0.7

8 0.9

2 1.1

01

.13 1

.28 1.4

11

.46

1.4

91

.52

1.5

2

1.3

51.4

61

.29

1.2

0

1.0

11.1

9

0.3

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F 16F 17F 18F 19F20F 21F

Source: U.S. Department of Commerce; Blue Chip Economic Indicators (9/15); Insurance Information Institute.

Insurers Are Continue to See Meaningful Exposure Growth in the Wake of the “Great Recession” Associated with Home Construction: Construction Risk

Exposure, Surety, Commercial Auto; Potent Driver of Workers Comp Exposure

New home starts plunged 72% from 2005-2009; A net

annual decline of 1.49 million units, lowest since records began

in 1959

Job growth, low inventories of existing homes, low mortgage rates and demographics should continue to stimulate new home construction

for several more years

50

Rental-Occupied Housing Units as % of Total Occupied Units, Quarterly, 1990:Q1-2015:Q1

30%

31%

32%

33%

34%

35%

36%

37%

90

:Q1

91

:Q1

92

:Q1

93

:Q1

94

:Q1

95

:Q1

96

:Q1

97

:Q1

98

:Q1

99

:Q1

00

:Q1

01

:Q1

02

:Q1

03

:Q1

04

:Q1

05

:Q1

06

:Q1

07

:Q1

08

:Q1

09

:Q1

10

:Q1

11

:Q1

12

:Q1

13

:Q1

14

:Q1

15

:Q1

Sources: US Census Bureau, Residential Vacancies & Home Ownership in the First Quarter of 2015 (released April 28, 2015) and earlier issues; Insurance Information Institute. Next Census Bureau report to be released on July 28, 2015.

Trough in 2004:Q2 and Q4 at 30.8%

Since the Great Recession ended in June 2009, renters occupied 5.7 million more units (+15.6%).

50

Latest was 36.3% in 2015:Q1

Trend down began in 1994:Q3 from

36.2% in Q2

Increasing percent of

owners

Increasing percent of

renters

51

I.I.I. Poll: Renter’s Insurance

Source: Insurance Information Institute Annual Pulse Survey.

2011 2012 2013 2014 201510%

20%

30%

40%

50%

60%

70%

29% 31%35% 37%

40%

The Percentage of Renters Who Have Renters Insurance Has Been Rising Since 2011.

Q. Do you have renters insurance? 1

1Asked of those who rent their home.

Americans are increasingly choosing to rent, but are slow to understand the

need to insure, exacerbating the underinsurance gap

52

16.9

16.5

16.1

13.2

10.4

11.6

12.7

14.4

15.5 16

.4 17.2

17.3

17.2

17.1

17.0

17.0

16.9

16.9

16.617

.117.5

17.8

17.4

9

10

11

12

13

14

15

16

17

18

19

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F 16F 17F 18F 19F 20F 21F

(Millions of Units)

Auto/Light Truck Sales, 1999-2021F

Source: U.S. Department of Commerce; Blue Chip Economic Indicators (10/15); Insurance Information Institute.

New auto/light truck sales fell to the lowest level since the late 1960s. Forecast for 2014-15 is

still below 1999-2007 average of 17 million units, but a robust recovery is well underway.

Job growth and improved credit market conditions will boost auto sales in

2015 and beyond

Truck, SUV purchases by

contractors are especially strong

Yearly car/light truck sales will likely continue at current levels, in part replacing cars that were held onto in 2008-12. PP Auto premium

might grow by 3.5% - 5%.

Sales have returned to pre-

crisis levels

53

Number of Licensed Drivers, 1984-2013

150

160

170

180

190

200

210

220

84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

Sources: 2015 Ward’s Motor Vehicle Facts & Figures, p. 53; l I.I.

# of Licensed Drivers (millions)

Since 2009, virtually no growth in the

number of licensed drivers (through 2013)

Number of Registered Passenger Vehicles in US, 1999 – 2015E

Sources: Bureau of Transportation Statistics; Barclays Capital estimates, August 2015. 54

Vehicle registrations are growing once

again and now finally exceed pre-crisis

peak

Vehicle registrations are expected to increase at an

annual rate of about 1.5% per year in 2015

and 2016

55

America is Driving More Again: Total Miles Driven*, 1990–2015

*Moving 12-month total. The 2015 data are through May 2015, the latest available.Note: Recessions indicated by gray shaded columns.Sources: Federal Highway Administration (http://www.fhwa.dot.gov/policyinformation/travel_monitoring/tvt.cfm ); National Bureau of Economic Research (recession dates); Insurance Information Institute.

Billions

2,100

2,200

2,300

2,400

2,500

2,600

2,700

2,800

2,900

3,000

3,100

'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15

Some of the 1990-2007 growth in miles driven (+43.9%) is due to population growth (+20.7%)…

New records in

2015

…but the population grew by 6.6% from 2007-2015 and miles driven didn’t grow at all.

From November 2007 until January 2015, miles driven was below the

prior peak for 87 straight months—over 7 years! Previous record was

in the early 1980s (39 months).

Auto Loans and Other Non-Housing Debt, 2004 – 2015:Q1

56

Banks are becoming increasingly aggressive in marketing auto loans

Source: Federal Reserve Bank of NY Consumer Credit Panel/Equifax; l. I.I.

Auto loan debt outstanding

reached $1T for the first time ever

in Q1 2015

57

Millennials as Employees

A Talent Gap Looms

Insurance Industry Employees Are Older than in Most Industries

57

Insurance Talents Crisis: Millennials Are the (Only) Solution

Sources: http://www.propertycasualty360.com/2013/04/17/insurance-industry-crisis-400000-positions-to-fill

By 2020, insurers will have an estimated 400,000 job openings

The number of professionals 55 and older is 30 percent higher in the insurance industry than the rest of the economy

The number of insurance professionals

over 55 has risen 74 percent during the past 10 years.

59

Overview of Insurance Sector Employment Changes, Jan. 2014 – Aug. 2015*

*Data are through August 2015 and are preliminary (i.e., subject to later revision); seasonally adjusted.

Source: US Bureau of Labor Statistics as compiled by the Insurance Information Institute.

Insurance Subsector

January 2014

Employment

August 2015

EmploymentChange Percent

Change

CARRIERS

P-C Direct 513,500 525,500 +12,000 +2.3%

Life Direct 343,000 365,500 +22,500 +6.6%

Health/Medical Direct 508,100 521,900 +13,800 +2.7%

OTHERS

Agents/Brokers 694,000 735,400 +41,400 +6.0%

Data Breaches 2005-2015, by Number of Breaches and Records Exposed# Data Breaches/Millions of Records Exposed

*Figures as of June 30, 2015, from the Identity Theft Resource Center,http://www.idtheftcenter.org/images/breach/ITRCBreachReport2015.pdf

157

321

446

656

498

419470

614

400

783

662

117.6

85.692.0

17.522.9

35.7

19.1

66.9

222.5

16.2

127.7

100

200

300

400

500

600

700

800

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 *20150

20

40

60

80

100

120

140

160

180

200

220

# Data Breaches # Records Exposed (Millions)

The total number of data breaches (+27.5%) hit a record high of 783 in 2014, exposing 85.6 million records. Through June 30, this year has

seen 117.6 million records exposed in 400 breaches.*

Millions

61

$1.5$2.0

$7.5

$0

$1

$2

$3

$4

$5

$6

$7

$8

2014 2015E 2020F

Estimated Cyber Insurance Premiums Written, 2014 – 2020F

Cyber insurance premiums written

could more than triple to $7 billion by 2020

Source: Advisen (2014 est.); PwC (2015, 2020); Insurance Information Institute.

$ Billions

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